Pretty Price: Insight Sells for $3B in Cash

About a month after its formalauction process collapsed, Insight Communications
landed a buyer last week, agreeing to a $3
billion all-cash deal with Time Warner Cable.

The agreement ends a five-month odyssey
for Insight, which was put on the block in
March after owners Carlyle Group, Crestview
Partners and Mid Ocean Partners hired investment
bankers UBS and Bank of America Merrill
Lynch to run
the auction.

The deal also
marks the end of
an era for Insight
CEO Michael
Willner, who cofounded
the company
in 1985 with
chairman Sidney
Knafel. Willner, a
37-year veteran of
the cable industry
— he got his first job
in cable in 1974 at Vision Cable — said he hasn’t
decided what his next step will be.

“Doing nothing is not an option,” Willner
said. “I’m not ready to do nothing.”

But he added that hooking up with another
private-equity firm to buy cable systems probably
is not in the cards.

“I kind of think after doing what I’ve been
doing for one company for 26 years and for two
companies for my entire career, maybe something
a little different might be more interesting,
other than just going out and acquiring and operating
cable networks,” Willner said.

According to reports, Insight was initially
expected to attract bids of $3.5 billion to $4 billion
(a figure that some insiders dispute). That
would have valued the 700,000-subscriber MSO
at between 11 and 12 times cash flow, potentially
making the deal one of the priciest in years.

Insight fell short of that goal, but in the end,
the deal appears to be good for both sides. Time
Warner Cable gets a well-run MSO with operations
in Ohio, Indiana and Kentucky adjacent to
properties it already owns in those states at an
attractive price — considering $300 million in
tax benefits and $100 million in programming
synergies, TWC values the transaction at 5.9
times cash flow. At the same time Insight’s owners
get an all-cash deal that, excluding the tax
and programming synergies, values their operations
at about 8 times to 8.5 times cash flow.

Time Warner Cable sat out the formal auction
process, which had included MSOs Charter
Communications, Suddenlink Communications,
Mediacom Communications, Cablevision
Systems and WideOpenWest in the early
rounds. That field was whittled down to Mediacom
and WOW when final bids were due in
mid-July, but the formal auction closed without
a clear winner.

Time Warner Cable chief financial officer
Irene Esteves said in an interview last
week that the cable giant sat out the auction
mainly because of
the asking price,
but re-entered
the fray as it became
clearer that
it could get a discussion
going that
would “allow us to
purchase a very
attractive asset at
a very attractive
price.”

She noted that
the 6 times valuation
was on par with TWC’s public trading multiple
at the time of the deal.

Insight has a solid reputation as a well-run
operator, but growth — which had been in
double digits between 2005 and 2009 — has
shown signs of slowing down. In the first two
quarters of this year, revenue and cash flow
at Insight have ticked up about 2% each.

Esteves said that, like TWC, Insight has
had challenges, but she sees opportunities
for growth in enhancing its products with
Time Warner Cable offerings like Start Over
and Look Back, pricing and on the commercial
side of the business.

The deal will be funded through TWC’s
existing cash reserves — it had $3.5 billion
in cash and cash equivalents as of June 30
— and will have no effect on the company’s
ongoing share repurchase plan. TWC said in
November that it would buy back as much as
$4 billion of its own stock over the next several
years. So far, Esteves said the MSO has
repurchased about $2.5 billion of its own
shares as part of that program.

This is the second big deal for TWC in the
past two months. In June, it agreed to buy
NewWave Communications for $260 million.
But Esteves said not to expect the MSO
to go on a near-term buying binge.